Top 5 Misconceptions About The FCPA

Bad information is often worse than no information. There is a tremendous amount of noise in the discussion around FCPA. Not only noise, but anti-signal. That is, not just bad information, but information that is contrary to fact. So let me clear up a few misconceptions about the FCPA.

Yes, they do, and no, it’s really not. When I hear companies talk about the lack of clarity in the law—”who is a foreign official” is a good example—what I really hear is “we don’t want to comply with the law.” First, the DOJ has taken an incredibly reasonable, reasoned, down-to-earth approach to the who-is-a-foreign-official question. But let’s go back to square one: in 99% of the cases, it’s clear cut. Rarely is there an actual debate within compliance about whether someone is a government official. For the market where it actually could be an issue, China, the majority of companies I talk to take an everyone-in-China-is-a-government-official stance. I might disagree with the principle, but it’s a common approach. And one about which reasonable people can disagree.

In those rare cases where it’s a true conundrum, the DOJ’s approach is to look at all the facts and make the call. The DOJ even has given us a safe harbor here: if you really think about it, and come to the wrong decision, you still won’t be prosecuted. At least, that’s according to Jeff Knox, who is Chuck Duross’ immediate superior. Thank heaven for “luncheon law,” because Knox said that at the recent ACI conference in response to a question from a brilliant member of the audience. (OK, it was from me). So most of the time, it’s easy. When it’s not easy, you’ve got a safe harbor for even an incorrect analysis, as long as the analysis is genuine and made in good faith.

And let’s face it, how many companies are honestly sitting there saying, “if only I understood the definition of a foreign official, I’d comply with the law”?

Same with facilitation payments: at the edges, maybe you can make an argument that it’s tough to tell where the line is. But in the vast majority of cases, it’s easy to tell. Walmart might be the exception that proves the rule (but the more information that comes out, the more it smells like bribery, versus just trying to get people to move faster. And yes, I’m just getting my information from the New York Times, like everyone else).

Most of the time, in fact, the reality is this:

his is not the graphic of a vague or poorly written statute (nor is it the graphic of someone who is good at creating graphics). And this isn’t just the graphic for facilitation payments. It’s the graphic for most all of the “vague” pieces of the statute.

And with other enforcement questions. I’ve often heard that parent companies can get held responsible for cases where they didn’t even know about the bribes. The graphic applies to that situation too. In the vast majority of cases, knowledge is easy: the CEO or CFO of the parent company actively participated in the bribery. For other circumstances, see #2.

2. The DOJ uses respondeat superior to punish companies for the actions of low-level employees

There is a legal concept known as respondeat superior. Essentially, since a corporation is a “person,” but a legal fiction, there’s a recognition that a corporation can only act through its employees. All employees. If an employee acts within the scope of his or her employment, and for the benefit of the corporation, then the corporation can be held liable. It doesn’t matter if the employee is low-level or not. So, if a driver for a beer company speeds on a highway to deliver beer, and causes an accident, the corporation is responsible.

There’s a feeling that the same sort of thing is happening with FCPA enforcement. Some salesperson somewhere pays off a government client to re-sign, and the corporation (and sometimes the parent company) is held liable. In theory, this could be the case.

In reality, there has yet to be an enforcement action based on facts like this. Let me say that again: there have been exactly zero enforcement actions where even a subsidiary company, much less a parent company, has been held liable for the actions of lower-level employees.

If you actually look into the facts of the actions the DOJ brings, it would be a rare case indeed which didn’t involve a “C”-level employee. Usually, at the very least the country manager for the parent is a knowing participant. In a lot of cases, the CFO has direct involvement (probably because bribes involve payments, and the CFO is in charge of payments.) You often have other senior corporate officers involved: the head of operations, the head of sales for the market in which the bribery occurs, at that level.

Plus, in a lot of cases, the problem goes beyond one market. If even lower-level employees in eight markets are all using the same techniques to bribe officials to get business, that kind of systemic problem can only originate at the parent company, I think.

The same principle applies with third parties.

3. Third parties can embroil companies in FCPA trouble when the company knew nothing about what the third party was doing

Another technically true statement with absolutely no enforcement actions behind it. Yes, companies are liable for the actions of third parties, even when the company didn’t actually know if the third party was going to bribe, as long as there were sufficient red flags that should have alerted the company that bribery was happening.

I think I’ve seen that line, or something like it, in every FCPA training out there. Usually, the next slide is a list of red flags. I’m not putting myself above the fray here: I’ve used that line myself, and gone through red flags on the next slide. I even have a stock joke I tell at that point, about how I gave the training in China and changed “red flags” to “warning signs” because I thought “red flags” might be culturally insensitive. True story, by the way.